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Natural Gas Pipeline Policy Reset

On April 19, 2018, the Federal Energy Regulatory Commission (Commission or FERC) issued a notice of inquiry (NOI) initiating review of its 1999 Certificate Policy Statement, which many landowners, environmentalists, and others have argued weighs too heavily in favor of approval of natural gas infrastructure. Certification of New Interstate Natural Gas Facilities, Docket No. PL18-1-000. Comments are due 60 days after the NOI is published in the Federal Register. Commenters are asked to provide, with specificity, any perceived issues with the Commission’s current analytical and procedural approaches and to provide detailed recommendations to address these issues.

Background

The 1999 Certificate Policy Statement provides the analytical framework the Commission uses to decide when a proposed project is required by the public convenience and necessity. Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶ 61,227 (1999), clarified, 90 FERC ¶ 61,128, further clarified, 92 FERC ¶ 61,094 (2000). See Understanding FERC’s Certificate Review Policy. The threshold question is whether an applicant can show that the project is financially viable without financial subsidies from existing customers. The next step is to determine whether the applicant has made efforts to eliminate or minimize any adverse effects the project might have on the existing customers of the pipeline company proposing the project, existing pipelines in the market and their captive customers, or landowners and communities affected by the new pipeline route. In recent years, this second step has generated great controversy.

Draft NOI on the 1999 Certificate Policy Statement

In December 2017, the FERC’s Chairman announced that the Commission would embark on a review of its 1999 Certificate Policy Statement. On April 19, the Commission initiated that review by issuing a NOI seeking information and comments to assist the Commission in determining whether, and if so how, it should revise the 1999 Certificate Policy Statement.

As an initial matter, the draft NOI explains that the Commission will continue to “process natural gas facility matters” currently pending before it using the 1999 Certificate Policy Statement framework, and will make determinations “on the issues raised in those proceedings on a case-by-case basis.” The draft NOI also explains that the Commission will not address specific issues raised in existing contested proceedings in the draft NOI proceeding – rather, it will only address generic issues.

The NOI observes that since 1999, there have been significant changes in the supply and demand forces in natural gas markets, including advancements in production technologies and access to shale reserves. The NOI also points out that stakeholders have increasingly raised concerns regarding greenhouse gas (GHG) emissions and climate change in response to proposed projects. It points out that the Commission’s environmental review has evolved to provide “the public with additional information, beyond the requirements of [the National Environmental Policy Act of 1969 (NEPA)] and its implementing regulations, regarding potential impacts associated with upstream unconventional natural gas production and downstream natural gas combustion even where the criteria of causation and reasonable foreseeability were absent.” The NOI notes, however, that the Commission has not used the Social Cost of Carbon tool because it has found that “it is not useful or appropriate to apply in its NEPA documents.” Lastly, in light of President Trump’s Executive Order 13807, “Establishing Discipline and Accountability in the Environmental Review and Permitting Process for Infrastructure Projects,” the NOI expresses a “desire to improve the transparency, timing, and predictability of the Commission’s certification process.” The Commission committed to carrying out the goals of Executive Order 13807, including “mak[ing] timely decisions with the goal of completing all Federal environmental reviews and authorization decisions for major infrastructure projects within 2 years.” See Agencies Sign MOU to Implement Infrastructure Permitting Improvements. The NOI recognizes that “[i]nefficiencies in project decision-making can delay infrastructure investments, increase project costs, and block infrastructure that would benefit the economy.”

Against this background, the NOI seeks comments on whether and how the Commission should modify:

Its need analysis. Specifically, the NOI asks whether the Commission should look beyond precedent agreements, whether the Commission should distinguish between precedent agreements with affiliates and non-affiliates, whether the Commission should consider requiring additional or alternative evidence of need for different end uses, and whether the Commission should adjust its assessment of need to examine (1) if existing infrastructure can accommodate a proposed project (beyond the system alternatives analysis examined in the Commission’s environmental review); (2) if demand in a new project’s markets will materialize; or (3) if reliance on other energy sources to meet future demand for electricity generation would impact gas projects designed to supply gas-fired generators.

Its consideration of the potential exercise of eminent domain and of landowner interests. Specifically, the NOI requests comments on whether the Commission should adjust its consideration of the potential exercise of eminent domain, whether applicants should take additional measures to minimize the use of eminent domain, and whether the Commission should reconsider how it addresses applications where the applicant is unable to access portions of the right-of-way.

Its evaluation of the environmental impacts. Specifically, the NOI requests comments on whether NEPA and its implementing regulations require an agency to consider reasonable alternatives to the proposed action, whether the Commission should consider broadening its environmental analysis to consider alternatives beyond those that are currently included, whether the Commission should consider calculating the potential GHG emissions from upstream activities, whether the Commission should also evaluate the significance of the upstream impacts, whether the Commission should consider calculating the potential GHG emissions from the downstream consumption of the gas, and whether the Commission should reconsider the use of the Social Cost of Carbon tool in its environmental review of a proposed project.

Procedural changes. The Commission also seeks input on whether there are specific changes it could consider implementing to improve the efficiency and effectiveness of its certificate processes including pre-filing, post-filing, and post-order issuances. Specifically, the NOI requests comments on whether the Commission’s pre-filing, post-filing, and post-order-issuances should be shortened, performed concurrently with other activities, or eliminated, to make the overall process more efficient, and whether there are classes of projects that should be subject to a shortened process.

Commissioners’ Comments

The Commission’s Chairman and each Commissioner commented on why he or she supported the draft NOI:

Chairman McIntyre explained that it was important for the Commission to review the 1999 Certificate Policy Statement because of the changes in the industry and locations of development since 1999. The Chairman emphasized, however, that the issuance of the NOI did not signal a preference by the Commission to change its existing certificate review policy, rather, the NOI signals that the Commission wants more information on its existing certificate review policy.

Commissioner LaFleur also voiced her support of the NOI. She seeks specific information relating to the Commission’s need evaluation and environmental review. Specifically, she asked for detailed comments on whether the Commission should look beyond precedent agreements as evidence of need. For example, she asked whether a project’s end use should be considered. Commissioner LaFleur also pointed out that the NOI seeks comments on whether and how the Social Cost of Carbon tool should be used in the Commission’s environmental analysis.

Commissioner Chatterjee also supports the NOI and believes that the NOI symbolizes the Commission’s efforts toward good governance. He pointed out that the existing Certificate Policy Statement has “enabled the development of a robust interstate pipeline infrastructure.” He observed that the Commission’s review could also allow commenters to identify areas where the certificate review process is working well. Commissioner Chatterjee encouraged all interested parties to weigh in and sought “robust participation from stakeholders who represent all sides and interests.”

Commissioner Powelson also expressed support for the NOI. He noted that the 1999 Certificate Policy Statement requires the applicant to meet a certain economic threshold and that pipeline projects “are not built on spec.” He asked staff to explain why and how the Commission has relied on precedent agreements. Staff responded that the Commission has found the firm contracts to be strong evidence of market need because the applicants and the shippers are financially at risk.

Commissioner Glick also voiced his support of the NOI’s comprehensive review and encouraged robust participation. He seeks specific comments on whether the Commission should require evidence beyond precedent agreements when there is an affiliate relationship. Commissioner Glick also seeks specific comments on the impacts of the project on the environment and climate change.

What’s next?

The Commission will accept comments on the draft NOI, which are due 60 days after publication of the order in the Federal Register.

Notably, a group of environmental entities filed a letter with FERC on April 20, commenting on the NOI.[1] They commented that “[a] project that is not needed to satisfy energy requirements that also will cause permanent environmental and economic impacts is antithetical to the public interest. Thus, project need should be the threshold determination for whether a project is in the public interest.” The environmental groups also recommended that the Commission “[p]erform deeper review when proposed projects depend on pipeline affiliate agreements. . . .” The groups also recommended that the Commission adopt a regionally-focused review and assessment of pipeline projects modeled after the “electric sector”. . . .” The environmental groups also recommended that the Commission “satisfy its ‘hard look’ requirements under [NEPA] . . . to consider all direct, indirect, and cumulative environmental impacts, including downstream effects.” Finally, the environmental groups recommended that the Commission could ensure “meaningful opportunities for public participation” and strengthen public confidence if it held “hearings when there are disputed issues of material fact and through the creation and funding of a FERC Office of Public Participation[,] . . . [and] develop[ed] deliberate, concrete methods to (1) incorporate the voices of environmental justice communities as required by Executive Order 12,898, and (2) consult[ed] and collaborat[ed] with all tribal communities.”

The environmental groups’ comments demonstrate that the proceeding could result in the FERC significantly modifying the manner in which it evaluates certification of new natural gas facilities. Thus, as Commissioner Chatterjee pointed out, the comments filed must comprehensively discuss the successes of the Commission’s current Certificate Policy, as well as areas for improvement or modification.

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